Top Eminent Healthcare Group Ltd (Formerly Known As Clsa Premium Ltd and Kvb Kunlun Financial Group Ltd) and Others v. Banclogix System Co, Ltd
Read the full judgment text of HCA 1416/2019 on BabelCite. This High Court CFI judgment was delivered on 22 May 2026.
1. This is the trial of two actions which were ordered by the court to be heard together.
Cited by 3 cases · Cites 4 cases
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HCA 1416/2019 [2026] HKCFI 2869 HCA 1416/2019 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1416 OF 2019 ________________________
________________________ AND ACTION NO 452 OF 2020 ________________________
_______________________ (Heard Together)
___________________ J U D G M E N T ____________________ The Actions 1.This is the trial of two actions which were ordered by the court to be heard together. 2.The first action is HCA 1416/2019 (“HCA 1416”). The Plaintiffs are 4 companies in a group. They are: -
(P1 – P4 shall hereinafter collectively be referred to as “the Plaintiffs”). The Defendant is a company called Banclogix System Co., Ltd. (“the Defendant”). 3.The second action is HCA 452/2020 (“HCA 452”). The plaintiff therein is the Defendant and the defendant therein is P1. The Parties and the Related Companies 4.P1 (which was formerly known as “KVB Kunlun Financial Group Ltd.” and is also referred to as “KVBFG” or “FG”) is a company incorporated in the Cayman Islands in 2010. It was listed on the GEM Board of the Stock Exchange of Hong Kong Ltd. (“SEHK”) on 3 July 2013. It was subsequently transferred to the Main Board of SEHK on 15 December 2017. It specialized in the provision of leveraged foreign exchange (“forex”) trading services to predominantly Chinese customers residing overseas through its wholly-owned licensed subsidiaries in Hong Kong, Australia and New Zealand. 5.The said licensed subsidiaries consist of P2, P3 and P4: -
It is not in dispute that none of the Plaintiffs is in the forex trading business anymore and that none of them remains licensed by the SFC, the ASIC or the FMA. Nor is any one of them being pursued by any regulatory authority. 6.For the sake of convenience, the abovementioned companies will hereinafter collectively be referred to as “the Plaintiffs’ Group” or “the FG Group”. There were/are other minor subsidiary companies in the Plaintiffs’ Group which are not relevant to this case. Hence, they are not mentioned here. As can be seen from the explanation below, the Plaintiffs’ Group was once also known as the “KVB Group”. 7.KVB Kunlun Holdings Ltd. (“KVB Holdings”) was incorporated in the British Virgin Islands on 11 April 2005. 8.KVB Holdings has been the holding company of the Defendant which is its wholly-owned subsidiary. The Defendant has been engaging in the provision of IT Services such as software development, IT maintenance, infrastructure and hardware set up. It is principally engaged in the provision of IT services for customers in the financial services sector. 9.The then “KVB Group” consisted of P1, P2, P3, P4 and the Defendant until Citic Securities Co., Ltd. (“Citic”) acquired a majority share in P1 from KVB Holdings. Hence, all those companies were once sister companies. 10.On 29 May 2015, Citic acquired from KVB Holdings a 59% shareholding in P1 through its wholly-owned subsidiary Citic Securities Overseas Investment Co., Ltd. In 2025, Citic sold a major part of its interest in P1 to the Beijing Tong Ren Tong (Cayman) Ltd. and just remained as a minority shareholder of P1. 11.Accordingly, after the said takeover by Citic, there was a separation of the companies. The Plaintiffs’ Group then comprised of P1, P2, P3 and P4 only. The Defendant ceased to be part of the Plaintiffs’ Group and remained as a wholly-owned subsidiary of KVB Holdings. The Earlier Management of the Plaintiffs’ Group 12.One Stephen Liu (“Liu”) was P1’s executive director and its Chief Executive Director between 9 November 2010 and 28 July 2019 when he resigned. Liu was also appointed as a director of P2 on 9 June 2004, a director of P3 on 26 August 2002 and a director of P4 on 6 September 2001. Liu was never appointed to any role in the Defendant. 13.Liu was further appointed as managing director of the KVB Group in March 2006 and the Country Manager of New Zealand and Australia of the KVB Group in August 2011. 14.Despite the said takeover by Citic in 2015, the general management and operational control of the Plaintiffs largely remained under the KVB Group at the material time. 15.Citic did not even nominate its own directors onto the board of directors of P1 until 21 May 2018 when one Li Jiong and one Xu Jiangqiang were nominated by Citic and appointed as non-executive directors of P1 (out of a total of 9 directors). The Relevant Agreements (i) The 2014 Agreement 16.In 2014, P1 entered into a Master Agreement dated 29 January 2014 (“the 2014 Agreement”) with the Defendant in relation to the provision of IT Services to the Plaintiffs’ Group. The 2014 Agreement was specified to expire on 31 December 2015. (ii) The 2016 Agreement 17.In 2016, P1 and the Defendant entered into another Master Agreement dated 19 April 2016 for IT services (“the 2016 Agreement”). The scope and terms of the 2016 Agreement were substantially similar to those in the 2014 Agreement except for an increased notice period from 1 month to 3 months and for a significant increase in the annual fee caps. It was specified to expire on 31 December 2018. 18.The 2016 Agreement was subsequently amended twice, first on 12 August 2016 and next on 12 February 2018. The amendments basically provided for substantial increases in the fee caps, up to $37.5 million by 2018. This was because of P1’s request for the Defendant to provide further IT software under the 2016 Agreement and also because P1 had moved its listing from the GEM Board to the Main Board of the HKSE. (iii) The 2018 Agreement 19.In 2018, 3 days before the expiry of the 2016 Agreement, P1 and the Defendant entered into a new Master Agreement dated 28 December 2018 (“the 2018 Agreement”). 20.The meaning and effect of the 2018 Agreement (and incidentally also those of the 2014 Agreement and the 2016 Agreement) will be discussed below. (iv) Another Agreement dated 28 December 2018 21.For the sake of completeness, it should be mentioned that P1 and KVB Holdings also entered into a separate agreement dated 28 December 2018 (“the 2nd 2018 Agreement”). This agreement referred to earlier agreements between the same parties dated 18 December 2012, 13 June 2013 and 18 December 2015. It relates to “Services” provided by KVB Holdings to P1. Such “Services” were defined as “financial system services which include the provision of enterprise resources planning system support”. 22.Neither the Plaintiffs’ Group nor the Defendant has based any of its arguments on this agreement in relation to HCA 1416. There is, however, reference to this agreement in relation to HCA 452. I shall deal with this later. The Respective Main Cases of the Parties (i) The Plaintiffs’ Case 23.In brief, the main contention of the Plaintiffs in HCA 1416 is that there are a number of implied terms in the 2018 Agreement and that the Defendant had been in repudiatory breach of such implied terms. Further, as a result of such implied terms, P1 was entitled to terminate the 2018 Agreement with the Defendant and claim relief, including declaratory and injunctive relief as well as damages against the Defendant. 24.It is important to note that the Plaintiffs have made it clear that they are not alleging or basing their claim on any breach of any of the express terms of the 2018 Agreement or of any of the Statements of Work issued thereunder. Nor are they basing their claim on any alleged tortious act of misconduct on the part of the Defendant as opposed to their alleged acts in breach of contract. 25.In the above circumstances, the Plaintiffs’ claim will primarily depend on whether they are able to establish the existence of the implied terms alleged by them. This is also the stance of the Plaintiffs. (ii) The Defendants’ Case 26.In brief, the Defendant denies that the implied terms alleged by the Plaintiffs exist. On the contrary, the Defendant also argues that there are other implied terms based on the law of New Zealand which have the effect of countering the implied terms alleged by the Plaintiffs. In any event, the Defendant denies any breach of contract or wrongdoing by them as alleged by the Plaintiffs. 27.In HCA 452, the Defendant also has a claim against P1 for outstanding service fees. The Agreed List of Issues 28.The parties have produced a relatively simple Agreed List of Issues. The issues listed are as follows: -
The abovementioned issues will be referred to as “Issue 1”, “Issue 2”, “Issue 3” and “Issue 4” respectively. 29.By the Order of Coleman J. made on 9 December 2021 by consent of the parties, if the Plaintiffs are successful, then the question of the entitlement of the Plaintiffs to damages will be tried before the same trial judge at a later trial. It can therefore be seen that the primary and predominant issue is Issue 1. The 2018 Agreement 30.In order to determine whether Ps’ Implied Terms can be established, it is necessary to examine first the express terms in the 2018 Agreement. 31.In the Recital, paragraphs (A) and (C) read as follows: -
32.Under Clause 1, the following definitions, inter alia, appear: -
33.Clause 2 reads as follows: -
34.The relevant parts of Clause 3 read as follows: -
35.Clause 4 reads as follows: -
36.Clause 5 reads as follows: -
37.Clause 6 reads as follows: -
38.Clause 12 provides that the 2018 Agreement shall be governed by and construed in all respects in accordance with the laws of Hong Kong. 39.I shall next set out the relevant parts of the Schedules referred to under the definition of “Services”.
Under the heading “Software Maintenance fee”, an annual Software maintenance fee is specified.
The details of the penalty under various circumstances are then set out.
(iii) Schedule B-1
(iv) Schedule B-2
There then follows a detailed table as to how the penalty is calculated if the Defendant does not perform as guaranteed. 40.It can be seen that all the provisions in the 2018 Agreement, in particular, the Schedules thereto, had been drafted in considerable detail. Ps’ Implied Terms as Pleaded 41.In paragraph 11 of the Amended Statement of Claim, the Plaintiffs plead as follows: -
D’s Implied Terms as pleaded 42.In paragraph 11 of the Amended Defence and Counterclaim, the Defendant pleads as follows: -
The Law on Implied Terms 43.There is no dispute between the parties on the law on implied terms in a contract which is well established. The parties only differ on the application of the law to the facts of the case. 44.The starting point on the survey of the law is the case of Kensland Realty v Whale View Investment (2001) 4 HKCFAR 381. In that case, Bokhary PJ said at paragraph 23 as follows: -
The conditions referred to in the said paragraph 23 above will be referred to hereinafter as “the 5 Conditions”. 45.As to the approach in the application of the 5 Conditions, guidance can be obtained from the judgment of the Court of Appeal in Hong Kong in the case of Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd. [2019] HKCA 261. In that case, the Court of Appeal first of all referred to the observations of Lord Hoffmann in the case in the Privy Council of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1998 at paragraphs 16 – 27. In the subsequent case of Marks & Spencer plc v BVP Paribas Securities Services [2016] AC 742, the UK Supreme Court clarified that the law on implied terms had not been changed by the observations of Lord Hoffmann in the Belize case. In paragraphs 26 – 28 of his judgment, Lord Neuberger PSC said as follows: -
46.The Court of Appeal in the Lo Yuk Sui case next referred to what Lord Neuberger PSC further said about the 5 Conditions and also referred to a summary of the law given by Lord Hughes in the later case of Nazir Ali v Petroleun Company of Trinadad and Tobago [2017] UKPC 2 in paragraphs 31 and 32 of their judgment as follows: -
47.Regarding the requirement of ‘necessity’, guidance can be obtained from the case of High Route Ltd. v Wong Chung Kai [2025] 1 HKLRD 778 decided by the Court of Appeal. In that case, the plaintiff and the defendant entered into a provisional agreement for the sale and purchase of the entire shareholding in a company (the PSP). The defendant was the sole shareholder and director of the company. The plaintiff purchaser refused to complete on the basis that it was not satisfied with the due diligence investigation on the company. It sued for the return of the deposit and for damages. The plaintiff argued that (i) the plaintiff should be entitled to carry out due diligence investigation on the business, financial, legal and all other aspects of the company, and (ii) completion was conditional upon the plaintiff having completed its due diligence investigation on all aspects of the company and was satisfied with the results. The trial Judge found against the plaintiff on the basis that the alleged implied terms could not be implied into the agreement. At the trial, the plaintiff argued that the question of whether it was satisfied with the result of the due diligence investigation should be determined on a subjective basis. The plaintiff appealed. On the appeal, the plaintiff reformulated its case and argued that the question of whether it should have been satisfied with the result of the due diligence investigation should be assessed by reference to the objective standard of a notional reasonable purchaser (instead of the subjective approach argued at the trial). 48.Regarding the change of the plaintiffs’ case, the Court had reservations whether such significant change should be permissible. In any event, the key components of the alleged implied terms should have been pleaded in the statement of claim. 49.Despite the above, the Court nevertheless considered the alleged implied terms as changed for the sake of completeness. The Court held that the alleged implied terms could not be implied into the agreement because the plaintiff would have been able to rely on other provisions in the agreement and the general law for remedies in case there was a breach by the defendant. The reasoning of the Court appears in paragraphs 55 – 58 of the Judgment as follows: -
Hence, the plaintiff failed because the requirement of necessity was not satisfied. 50.Another case which is relevant to the question of necessity and which demonstrates the point made in the last sentence in paragraph 58 of the Judgment of the Court of Appeal in the High Route case as set out in paragraph 49 above is the case of Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd. (Trading as Medirest) [2013] BLR 265 decided by the English Court of Appeal. In that case, there was a contract between the plaintiff, the Trust, and the defendant, Medirest, whereby the latter would provide catering and cleaning services over a period of seven years at a hospital in Essex. The facts are quite complicated. For present purposes, Clause 5.8 of the contract is relevant. It reads as follows: -
Each of the parties alleged that the opposite party had been in breach of the contract. The judge at first instance found as follows: -
The Trust appealed to the Court of Appeal. 51.For present purposes, I will only concentrate on the point about necessity. The relevant paragraphs in the judgment of the Court of Appeal are as follows: -
Hence, the Court allowed the appeal in favour of the Trust. 52.In the case of Lau Chun Ming v Deloitte Touche Tomatsu (a firm) [2022] HKCFA 8, the plaintiff entered into a contract with the defendant firm whereby the latter covenanted to provide two of its partners to act as trustees of a bankrupt estate in respect of which the plaintiff was a creditor and to help him to deal with the charged assets. He later discovered that the trustees had been late in instituting claims concerning some assets which were met with limitation defences which led to a settlement which he claimed was not sufficient. He therefore claimed against the defendant on the basis that there was an implied term in the contract to the effect that it would ensure that the trustees would act with reasonable care and skill as trustees of the bankrupt estate and conduct appropriate investigations regarding the bankrupts property. He lost both at first instance and in the Court of Appeal. He sought leave to appeal to the Court of Final Appeal. 53.The Court of Final Appeal refused to give him leave mainly on two grounds: -
54.In paragraphs 12 and 13, the Court said as follows: -
55.In the case of Bank of Baroda v GVK [2023] EWHC 2662 (Comm), the claimants were some Indian banks and the defendants were borrowers/lenders incorporated in India/Singapore. The loan facility documents specified that they were governed by English law. The defendants defaulted in repayment and the claimants sued them in England. The defendants put forward various arguments and both sides adduced expert evidence on Indian banking and insolvency laws. One of the arguments advanced by the defendants was that there was an implied term in the loan agreements in the following terms: -
It was submitted that such implied term would prevent the claimants from suing the defendants. 56.Dame Clare Moulder DBE sitting as a Judge of the High Court ruled as follows in her Judgment: -
In the end, she gave judgment for the claimants. 57.From the authorities referred to above, the following main principles regarding implied terms in a contract can be drawn: -
58.There is an additional point which is trite and well established by other authorities. If the contract had been concluded and/or drafted and/or vetted by legal advisers on both sides after negotiation and/or vetted by other experts, then it is unlikely that there would still be room for implying other terms. See Fraser Turner v Price Waterhouse Coopers [2019] PNLR 33 at paragraph 33 and Jay & Peace.com Inc. v Topshow Consultants [2002] 2 HKC143 at paragraph 23. The Relevant Background Facts 59.At this juncture, it would be pertinent to refer to some of the relevant background facts and to what the parties say about them. 60.P1 had specialized in the provision of forex trading services to predominantly retail Chinese clients residing overseas through its licensed subsidiaries, P2, P3 and P4, respectively in Hong Kong, Australia and New Zealand, with the great majority of them being in New Zealand. The plaintiffs and their clients used an electronic platform consisting of different versions of the live forex trading system called “ForexStar” (“Trading System”). Their clients were enabled to execute trades in forex with P1 through a desktop application created by the Defendant. 61.As mentioned in paragraph 5 above: -
62.Since its inception, P1 had shared common IT servers and facilities with the KVB Group. For example, both P1 and the KVB Group subsidiaries stored their files on the same employee-shared drive and shared the use of the internet domain “KVB Kunlun” and also the email domain of “KVBKUNLUN.com”. 63.Following the takeover by Citic, in 2015, the SFC gave direction to P1 to stop sharing a domain with its non-listed entities and to set up its own independent domain. Accordingly, in mid-2015, the Plaintiffs initiated a segregation project to separate P1’s data from that of the KVB Group (“Segregation Exercise”). P1’s data was relocated to the data centre of Equinix HK and the data of P2, P3, P4 and the Defendant was relocated to a data centre of CITIC Telecom CPC. The Segregation Exercise was conducted in a piecemeal manner and remained incomplete. It was reinitiated in 2019. 64.As noted above, on the expiry of the 2014 Agreement, the 2016 Agreement was entered into and on the expiry of the 2016 Agreement, the 2018 Agreement was entered into. Both the 2014 Agreement and the 2016 Agreement had been approved by P1’s shareholders and board of directors (with interested directors abstaining from voting). They were vetted by an independent financial advisor, Octal Capital Ltd., which concluded that their terms were fair and reasonable and in the interests of the Plaintiffs and their shareholders. It also emerged from the evidence at the trial that at least for the 2018 Agreement both sides were advised by lawyers. 65.In line with the amendments made in the 2016 Agreement, P1 agreed with the Defendant by way of SOWs to carry out various upgrades to the IT infrastructure and software of the Plaintiffs. They included the following: - (i) The Relocation Exercise
(ii) The CRM Revamp Project
66.As mentioned above, in early 2019, the Segregation Exercise was re-initiated by P1. The Segregation Exercise was not the subject of any SOW. It was agreed by Jimmy Lai (“Lai”), the Head of IT and Operations of P1 since 23 July 2019 and a witness for the Plaintiffs, in cross-examination that it was the duty of P1, not the Defendant, to carry out the Segregation Exercise. The exercise was led by one Joanne Chiu, the Director of Global Projects and Products of P2, who was also responsible for overseeing the Plaintiffs’ IT department and reviewing any signing off of any project related documents, such as SOWs, prepared by the project manager of the IT department of P2. When she resigned in May 2019, she was replaced by one Tony Yang. It is not disputed that employees of P1 were asked to classify, segregate and move their own data to P1’s KVBFG Domain as part of the Segregation Exercise. The Defendant took no part in this. 67.Another matter which troubled the Plaintiffs considerably was the policy of the financial regulatory authorities in the Mainland. Since 1994, the provision of forex margin trading services to Mainland domestic clients by financial entities and the use of such forex margin trading services by Mainland domestic clients without approval from the Mainland financial regulatory authorities, primarily the State Administration of Foreign Exchange (“SAFE”) was illegal. 68.According to Liu, whose evidence in this respect was not challenged, overseas institutions, however, considered that they were not covered by the prohibitory rule if they provided the abovementioned services via internet and/or online platforms. 69.The situation began to change in 2017, when the National Internet Finance Associations of China (“NIFA”) published an article cautioning against online forex trading without the necessary approval. 70.In late 2018, the Mainland authorities began to take action to crack down on the provision of forex trading services in violation of their regulations. 71.In May 2019, SAFE issued an official circular to declare that no institution or agency had approval for providing the abovementioned services in the Mainland and to make clear its stance against illegal online forex trading platforms. 72.At about the same time, the relevant regulatory authorities outside the Mainland took swift action to update their licencees about the Mainland authorities’ enforcement against illegal online forex margin trading platforms. Such regulatory authorities included the SFC, ASIC and FMA. 73.As a consequence, there followed a fallout between the original management in P1 under the leadership of Liu and the majority shareholder Citic. 74.The sudden change in the enforcement policy on the forex margin trading services had a great effect on the Plaintiffs because 95% of their clients were actual or potential Mainland domestic clients. 75.Concerns over the need for compliance were first raised by one Stephen McCoy, a director of P1, at a board meeting on 18 March 2019. Proposals were then made to identify and disengage actual or potential Chinese clients who resided in the Mainland (“Disengagement Exercise”). The first option was for closing all their accounts within one month. The second option was to adopt a more gradual process to be carried out over a period of 9 to 12 months. It was eventually decided that the second option was to be adopted. 76.Citic was extremely reluctant to proceed with the Disengagement Exercise and expressed grave doubt as to whether the Plaintiffs were covered by the prohibitory rule on the basis that they were not conducting their forex margin trading business within the Mainland. 77.On 30 April 2019, P1’s board received a legal opinion on Mainland law which suggested that P1 should stop doing business with Mainland residents. Citic threatened to sue P1 to protect its interest if customers were lost due to the Disengagement Exercise. Citic instructed two firms of solicitors, Linklaters and Ashurst, to act for it. 78.On 15 May 2019, in view of the dispute with Citic, P1’s board resolved (i) to request Citic to provide a further legal opinion on Mainland law and an indemnity to P1’s directors in relation to the Disengagement Exercise and (ii) failing the above, P1 would publish an announcement to declare the commencement of the Disengagement Exercise. 79.On 22 May 2019, Citic responded and said that it found it difficult to obtain a further legal opinion on Mainland law and refused to provide an indemnity as requested. In the end, Citic never provided any legal opinion on Mainland law in support of its contention that the Disengagement Exercise was not necessary. 80.On 31 May 2019, P1 made an announcement that, as advised by its legal advisers on Mainland law, a detailed survey would be conducted to identify any client who might possibly be classified as a Mainland domestic client and to disengage with such client as soon as possible. 81.Shortly after that, there was a major change in P1’s board at P1’s Annual General Meeting held on 27 June 2019. Of the eleven directors who remained or were appointed at that meeting, seven of them were nominated by Citic. One Yuan Feng (“Yuan”) who was nominated by Citic was appointed as an executive director and the Deputy Chief Executive Officer. Li Jiong, a nominee of Citic and who was already on the board, was appointed as Chairman of the board. Three independent non-executive directors retired and did not offer themselves for re-election. They were replaced by four Citic-nominated directors. 82.In the meantime, P1’s board received an SFC circular of June 2019 and a FMA letter of July 2019 which made the regulatory position clear. 83.At the board meeting of P1 held on 23 July 2019, all the directors agreed on the need to carry out the Disengagement Exercise. This would result in a big drop in the Plaintiffs’ business and their income and profit. At the same time, Li Jiong proposed that Citic would second four middle level staff to P1 with immediate effect. 84.On 28 July 2019, Yuan issued a notice to convene an urgent board meeting of P1 on the following day at which he proposed to revoke, invalidate and nullify the previously issued announcement about the Disengagement Exercise and to launch an investigation against Liu on the basis that there were reasons to suspect that Liu had not performed his fiduciary duties satisfactorily as Chief Executive. Liu was not given any details about his alleged misdeed. 85.On the same day, Liu resigned from all his positions in the Plaintiff companies. 86.Despite the above, in the end, the Plaintiffs did complete the Disengagement Exercise. The Alleged Breach of Ps’ Implied Terms 87.After Liu’s resignation from his office in the Plaintiffs’ Group on 28 July 2019, P1 requested the Defendant to grant access to Ps’ Data as described below. 88.On 31 July 2019, P1’s then solicitors, Herbert Smith Freehills, requested access to the Defendants’ servers and a review of P’s Data as soon as possible for the purpose of investigation into the Plaintiffs’ Group. It is alleged that the Defendant’s Chief Information Officer, one Ricky Tsang, had agreed. 89.Subsequently, the then solicitors for the Defendant, Chiu & Partners, replied and refused to grant access to P1 as requested. 90.It is admitted by P1 that it had access to live data, i.e., data or information which would be current on the Defendant’s servers. What the Plaintiffs want are historical data which are not present on the Defendant’s servers (whether because such data had been moved accidently or intentionally, maliciously or otherwise) and which were kept in the back-up tapes maintained by the Defendant. Access to such historical data was refused by the Defendant. 91.Such historical data would consist of CRM data consisting of clients’ information, profile/account of certain employees, email data, historical tracking data, finance data and missing document files. 92.The Plaintiffs further allege that the Defendant was in breach of Ps’ Implied Terms by failing to keep back-up tapes and maintaining them for 7 years. 93.In addition, the Plaintiffs allege that the motive for the Defendant’s refusal to cooperate with the Plaintiffs was to hide information from the Plaintiffs which had been informed by certain unidentified whistleblowers to the effect that Liu had been diverting customers and business belonging to the Plaintiffs. The Plaintiffs’ Grounds for the Implication of Ps’ Implied Terms 94.As has been reiterated by counsel for the Plaintiffs, Mr Lung, in the course of the hearing, the Plaintiffs do not allege that there has been breach by the Defendant of any of the express terms in the 2018 Agreement or in any of the SOWs. 95.The main plank on which the Plaintiffs base their argument that P’s Implied Terms should be implied into the 2018 Agreement is the matrix of facts at the time of the signing of the 2018 Agreement. (See Section E.2 of the Plaintiffs’ Closing Submissions). 96.The Plaintiffs’ argument based on the matrix of facts can be summarized as follows: -
97.The Plaintiffs further rely on the evidence of their expert, Mr Daniel Angelucci, on the practice in the trade regarding IT service agreements, although there is hardly any reference to this in the Plaintiffs’ Closing Submissions. The Defendant’s Counter-Arguments 98.The Defendant denies the existence of any implied terms in the 2018 Agreement. In any event, the Defendant denies that there has been any breach by it of the 2018 Agreement with or without Ps’ Implied Terms as alleged. 99.Regarding the allegation by the Plaintiffs that terms should be implied into the 2018 Agreement, the Defendant’s argument can be summarized as follows: -
Discussion 100.First of all, there is no dispute that the 2018 Agreement had been drafted with legal advisers on both sides, that the draft had been vetted and approved by the board of P1 (with interested directors abstaining from voting) and by independent consultants (because P1 was listed on the HKSE). In such circumstances and on the legal authorities, it is seriously doubted whether there can still be room for implying other terms into the agreement. 101.Although the Plaintiffs have made the point that the 2018 Agreement was substantially based or modelled on the 2016 Agreement and the 2014 Agreement, effect must be given to the entire-agreement clauses in the 2018 Agreement. First of all, there is Clause 6.1 (see paragraph 37 above) which refers to both the “agreement” as well as the “understanding” between the parties. Furthermore, there is also Clause 2.2 (see paragraph 33 above) which specifically referred to the 2016 Agreement and provided that it should be terminated immediately “with no further force or effect”. Despite the fact that the Plaintiffs have produced some authority to the effect that an entire-agreement clause is not absolute in preventing the previous dealings between the parties being relied on for implying terms into their agreement, such entire-agreement clause must have the effect of considerably cutting down the scope for such reliance on previous dealings. At the end of the day, it is still a question of construction of the entire agreement. 102.Another point to be borne in mind is that there is a difference between the 2014 Agreement and the 2016 Agreement on the one hand and the 2018 Agreement on the other hand in that, by the time that the 2018 Agreement was entered into in December 2018, the majority shareholder of P1 had been changed from the KVB Group to Citic which took over a major stake in P1 in May 2018. 103.Looking at the relevant specific provisions in the main body of the 2018 Agreement, the following are noted: -
104.Regarding the Schedules to the 2018 Agreement, namely, Schedules A-1, A-2, B-1 and B-2, they set out elaborately the details of the services to be provided by the Defendant. In particular, Schedule B-2, which relates to “IT INFRASTRUCTURE MAINTENANCE SERVICES”, is more indicative. Under the heading “SERVICES INCLUDED”, item 3 reads as follows: -
Furthermore, that Schedule also provides a penalty. It provides that: -
There then follows details for the calculation of the penalty. Thus, there is a specific provision for imposing a penalty in the event of the Defendant failing to provide information during trading hours. This is very different from an obligation on the Defendant for system recovery back-up/archival back-up on demand by the Plaintiffs over many years. 105.The point about item 3 in Schedule B-2 which I have referred to in paragraph 104 above has also bean dealt with by Mr Tony Sykes (the expert for the Defendant) in paragraphs 2.1.36 and 2.1.37 of the Joint Expert Report of Mr Daniel Angelucci (the Plaintiffs’ expert) and Mr Tony Sykes. I agree with the opinion of Mr Sykes. I further prefer the opinion of Mr Sykes to that of Mr Angelucci when Mr Sykes, in contrast with Mr Angelucci, says that data management services are not necessary or required to be provided by an IT service provider in order for it to properly perform IT service agreements as a general proposition. This is even more so in this case when considered against the background of all the express provisions in the 2018 Agreement, including the Schedules thereto. In view of the fact that all the said provisions were obviously drafted with great care and with such fine details, I cannot imagine that data management service would not even be mentioned in the 2018 Agreement or the Schedules thereto if the parties had really intended that such a service should be provided by the Defendant. 106.Furthermore, each of the Schedules also set out in detail the charges by the Defendant for the services provided thereunder. There is no reference to any charge for data management service or any of the services contemplated in Ps’ Implied Terms. The experts, M. Angelucci and Mr Sykes, are agreed that data management services do cost money which is not insubstantial. Hence, it is highly unlikely that such data management service to be provided by the Defendant as alleged by the Plaintiffs would not be the subject of any fee charged by the Defendant which would be the position if Ps’ Implied Terms were to be implied into the 2018 Agreement. 107.There has been produced in evidence copies of 20 Statements of Work dated between February 2015 and February 2019. Each of them consists of many pages with very detailed terms. Each would also be signed by P1 and the Defendant. Take, for example, the Statement of Work dated 28 February 2019 relating to the CRM Revamp Phase 2. It first states that the Statement of Work is entered into between the Defendant and P1 in accordance with the 2018 Agreement (which is described as the “Master Agreement”). It consists of 22 pages with very detailed provisions about the scope of work and are signed by the parties at the end. There is therefore no doubt that the 2018 Agreement is only the master agreement or umbrella agreement and that each Statement of Work is a separate contract in itself dealing with an individual project. 108.Take another example. Under the Statement of Work dated 5 February 2015, the services to be provided by the Defendant were Web Maintenance Services, IT Services and SAP Services. In relation to IT Services, the services to be included were: - (i) IT Helpdesk service; (ii) Technical Support; (iii) IT project management; (iv) IT solution consultancy; (v) Vendor management; (vi) IT operation management; (vii) IT security management. In relation to each of the above services, there are fine details set out. 109.In the abovementioned circumstances, it is difficult to see how other terms can be implied into the 2018 Agreement which is only the master agreement. 110.In my view, the biggest hurdle for the Plaintiffs is really to satisfy the condition of necessity. On the authorities cited above, a term can be implied only if it is necessary to make the contract work; a term can only be implied if, without it, the contract would lack commercial or practical coherence. The concept of necessity must not be watered down. As I see it, the 2018 Agreement can work perfectly well without Ps’ Implied Terms. If, as submitted by the Plaintiffs, the 2014 Agreement and the 2016 Agreement are to be taken into account, then all the three agreements had worked perfectly well from 2014 until July 2019 when P1 started making the demands in question against the Defendant. If the Plaintiffs needed data management service, all they had to do was to instruct their IT team or an outside service provider to provide it. 111.Furthermore, Ps’ Implied Terms as pleaded being so elaborate, I also do not think that they can satisfy the condition of obviousness. In any event, it seems that the Plaintiffs are no longer saying that they have satisfied the condition of obviousness. 112.I should also add that in relation to the witnesses called by each side, namely, Lai, Yuan and Chan Mo On on the Plaintiffs’ side and Stephon Ye, Yang Wenhuan and Liu on the Defendant’s side, there have been cross-attacks regarding the veracity of such witnesses. One point which has emerged from the evidence on both sides is that some data had been deleted from the various systems by staff from the Plaintiffs’ Group in the course of the various exercises referred to above, including the Relocation Exercise, the CRM Revamp Exercise and the Segregation Exercise. I am of the view that the evidence by these witnesses are not of assistance in my consideration of the issue as to whether Ps’ Implied Terms should be implied into the 2018 Agreement. Even if the Defendant had in fact been keeping back-up tapes for 7 years or for whatever period, it does not mean that they would be duty-bound to supply the same to the Plaintiffs as a matter of construction of the 2018 Agreement. Furthermore, whether the IT team of the Plaintiffs’ Group was big or small, it does not affect the question of whether without Ps’ Implied Terms the 2018 Agreement would still work. 113.Furthermore, regarding the allegation of misconduct on the part of Liu, since he is only a witness and not a party to these proceedings, it is inappropriate for me to make any finding on this issue of the alleged misconduct on the part of Liu and those working under him, especially in view of the fact that Yuan had said in the witness-box that he would try to gather more evidence against Liu and might possibly take legal action against him in future. Any finding by me on this issue would inevitably have an impact on any possible further legal action taken by the Plaintiffs against Liu. 114.For all the abovementioned reasons, I hold that the Plaintiffs have failed to prove their case on Ps’ Implied Terms. I will dismiss the Plaintiffs’ claim in HCA 1416. D’s Implied Terms 115.Regarding D’s Implied Terms, the parties had called experts to give evidence on New Zealand law. The Defendant called Ms Frances Mary Joychild KC with a view to proving that complying with Ps’ Implied Terms would involve the Defendant in contravening the privacy law in New Zealand. The Plaintiffs called Mr Marc Corlett KC with a view to proving the contrary. 116.It is to be noted that no expert evidence has been adduced on the law in Australia or Hong Kong. 117.As I see it, the Plaintiffs’ Group’s business involve investment activities in New Zealand, Australia and Hong Kong, although the majority of them are in New Zealand but not all. In such circumstances, even if the Defendant is successful in proving its case on New Zealand law so as to refute the application of Ps’ Implied Terms (assuming that they were proved), the same would still not have the effect of refuting Ps’ Implied Terms (assuming that they were proved) regarding their applicability to the Plaintiffs’ activities in Australia and Hong Kong. 118.In the abovementioned circumstances and in view of the fact that I have found that the Plaintiffs’ have failed to prove their case on Ps’ Implied Terms, I do not think that it is necessary for me to rule on the issue of D’s Implied Terms. The Defendant’s Counterclaim in HCA 1416 119.In the Defendant’s Counterclaim, it seeks various declarations to the effect that the Defendant has proved that D’s Implied Terms should be implied into the 2018 Agreement. 120.In view of my findings above, the declarations sought have no consequence and are unnecessary. I will make no order on the Defendant’s Counterclaim. The Defendant’s Claim in Action 452 The Defendant’s Case 121.In HCA 452, the Defendant claims against P1 the following main relief: -
122.Regarding the Termination Fee, the Defendant alleges that on 19 March 2020 P1, wrongfully and in breach of the 2018 Agreement, gave notice of termination of the 2018 Agreement with immediate effect and indicated that it would not pay the IT Fee which had been outstanding or the Termination Fee; on 6 April 2020, the Defendant through its solicitors, Chiu & Partners, accepted the repudiation of the 2018 Agreement by P1. 123.In claiming the Termination Fee, the Defendant relies on Clause 4.1(b) of the 2018 Agreement (see paragraph 35 above). 124.Regarding the Software Fee, the Defendant alleges that it had provided software maintenance services pursuant to a Statement of Work entitled “Project Scope SAP Enhancement Project” entered into between the Defendant and the Plaintiff on 26 July 2018 which was executed pursuant to the 2016 Agreement. 125.The Defendant further alleges that on 5 November 2019, Lai on behalf of P1 indicated a desire on the part of P1 to renew its SAP ERP System and that following a meeting between Lai and Stephon Ye on 5 December 2019, P1 confirmed that it would continue to subscribe for the SAP ERP System provided by the Defendant for the calendar year of 2020. 126.On 31 December 2019, the Defendant duly issued an invoice to P1 for the Software Fee. 127.According to the Defendants’ IT access records, P1’s staff continued logging into and using the SAP System throughout the month of January 2020. P1 is therefore estopped from denying that there was an agreement reached between Lai and Stephon Ye as referred to in paragraph 125 above. 128.Despite repeated requests and demands on various dates between January and March 2020, P1 has failed to settle the said invoice dated 31 December 2019. 129.In the above circumstances, the Defendant alleges that it is entitled under Schedule A-2 of the 2018 Agreement to charge the Software Fee for the calendar year of 2020 as computed on the basis of 15% of the SAP ERP System project cost of $2,990,400; i.e., $448,560. 130.Regarding the IT Fee, the Defendant alleges that, under Schedule B- 2 to the 2018 Agreement, the fixed annual fee chargeable by it for its IT infrastructure maintenance services for the year 2020 is $6,000,000 payable on a quarterly basis. P1 had paid the fee for the first quarter of 2020. On 5 March 2020, the Defendant issued an invoice for the IT Fee for the second quarter between 1 April 2020 and 30 June 2020 in the sum of $1,500,000. 131.As referred to above, on 19 March 2020, P1 gave notice to the Defendant that the 2018 Agreement would be terminated and indicated that it would not pay the IT Fee and the Termination Fee. P1’s Case 132.P1 first denies that it had wrongfully repudiated the 2018 Agreement. On the contrary, it claims that its termination of the 2018 Agreement is rightful because the Defendant had committed serious breaches of the 2018 Agreement which contained Ps’ Implied Terms. 133.Regarding the Defendant’s claim for the Termination Fee, P1 says, first of all, that the Defendant should not be entitled to the same on the basis referred to above because the Defendant as opposed to P1 is the party in breach. 134.Secondly, in the event that the court were to hold that P1 was in breach of the 2018 Agreement and that the Defendant was entitled to accept the alleged wrongful repudiation of the 2018 Agreement by P1, P1 says that the Defendant would still not be entitled to claim the Termination Fee because the alleged repudiation of the 2018 Agreement by P1 and the acceptance of such repudiation by the Defendant do not come within the ambit of Clause 4.1 of the 2018 Agreement. 135.Regarding the Defendant’s claim for the Software Fee, the Plaintiff says that there had been no agreement reached between Lai and Stephon Ye as alleged, that the accidental logging into and the use of the SAP System by some of P1’s staff would not create any estoppel against P1, and further that, in any case, the Defendant had not pleaded any reliance on or any prejudice caused by such logging in or use. Hence, the Defendant is not entitled to claim the Software Fee. P1 further argues that, in any event, the SAP System was provided by KVB Holdings under the 2nd 2018 Agreement and not by the Defendant. 136.P1 further argues that on the true construction of Schedule A-2, the Software Fee can only be charged on a pro-rata basis proportional to the actual number of months during which the Software was used by P1. 137.Regarding the Defendant’s claim for the IT Fee, P1 admits that it had paid the fee for the first quarter of 2020. Since P1 had given notice to the Defendant to terminate the 2018 Agreement on 19 March 2020, the Defendant is not entitled to charge the IT Fee which is for the second quarter from 1 April 2020 to 30 June 2020. The Defendant’s Response 138.Regarding its claim for the Termination Fee, the Defendant says that it is clearly entitled under Clause 4.1 of the 2018 Agreement. 139.Regarding its claim for the Software Fee, the Defendant relies on its IT access records which tracked P1’s use of the SAP System through its employees. It further refers to the fact that the Plaintiffs’ staff also requested urgent IT Support from the Defendant in relation to P1’s use of the SAP System. 140.Furthermore, it is not right to say that the SAP System was provided by KVB Holdings under the 2nd 2018 Agreement. Whilst KVB Holdings owned the licence for the SAP System and had entered into the 2nd 2018 Agreement to permit use of it by the Plaintiffs, it was the Defendant who was contracted by P1 to configure and integrate the SAP System to suit the Plaintiffs’ needs under the 2018 Agreement. The Software Fee relates to the services by the Defendant which was agreed to be charged under the SAP Enhancement Project SOW which was issued under the 2018 Agreement. 141.The Defendant disputes the construction of Schedule A-2 as argued by P1. 142.Regarding the question of whether P1 had agreed with KVB Holdings to renew P1’s subscription for the SAP System, Lai in cross- examination did agree that the Software Fee was pursuant to the terms of the 2018 Agreement. There was also no expiry stipulated for the SAP Enhancement Project Statement of Work. This is further supported by the 9-page IT access record showing the Plaintiffs’ repeated access to the system in January 2020. Discussion 143.I deal first with the Termination Fee. 144.In view of my findings above to the effect that the Plaintiffs have failed to prove that Ps’ Implied Terms should be implied into the 2018 Agreement and that the Defendant had not committed any breach of the 2018 Agreement, the notice issued by the Plaintiffs on 19 March 2020 to the effect that the 2018 Agreement was terminated with immediate effect and that they would not settle the IT Fee, I find that the Plaintiffs had wrongfully repudiated the 2018 Agreement and that the Defendant was entitled to accept such repudiation. 145.The question is what remedy the Defendant is entitled to as a result of the said repudiation. 146.In my judgment, the wording of Clause 4.1 of the 2018 Agreement is quite clear. I do not agree with the Plaintiffs’ submission that Clause 4.1 only covers the situation where either party gives 3 months’ written notice of termination. The opening words of Clause 4.1 merely set out the terms governing the situation when a Terminating Party would not be in breach of contract if it gives 3 months’ notice to terminate. Sub-paragraphs (a), (b) and (c) clearly sets out what the Terminated Party is entitled to receive as compensation depending on during which period the agreement was terminated, irrespective of whether the specified 3-month notice had been given or whether some shorter period notice had been given. 147.Furthermore, I do not agree with the Plaintiffs’ submission that Clause 4.1 is a penalty provision. It is trite that the use of the term “penalty” is not conclusive. Whether a provision amounts to a penalty provision depends on the substance of the provision. Quite clearly, the last sentence in Clause 4.1 indicates that the parties did apply their minds to the question of the nature of the provision and as to whether it would constitute a penalty provision and that they were satisfied and agreed that it was not. More particularly, in relation to Clause 4.1(b), a payment amounting to 10% of the Cap Amount does not seem punitive to me. An adoption of the figure of 10% appears to be quite standard in relation to provisions such as one for forfeiture of deposit. 148.I therefore find that the Defendant is entitled to charge the Termination Fee against the Plaintiffs. 149.On the other hand, in view of my finding in paragraph 148 above, I do not think that the Defendant is entitled to claim any common law damages or other expenses arising from the wrongful termination of the 2018 Agreement, such as the storage and other charges incurred in Singapore, in addition to the Termination Fee. The idea of the Termination Fee is to give to the Terminated Party an amount of compensation assessed and agreed between the parties to compensate the Terminated Party for the loss which it would suffer as a result of the earlier termination of the 2018 Agreement than the expiry date of 31 December 2021. 150.I next deal with the claim by the Defendant for the Software Fee. 151.To begin, I deal first with the ambit and effect of the 2nd 2018 Agreement. Under that agreement, KVB Holdings agreed to procure its subsidiaries which include the Defendant to provide the “Services” which is defined as “financial system services which include the provision of enterprise resources planning (ERP) system support”. KVB Holdings, being a holding company, would be unlikely to provide such services to the Plaintiffs. The likelihood was that it would ask its subsidiary, the Defendant, to provide such services. 152.I have checked the 9-page IT access records produced by the Defendant. They show that 5 persons, namely, Bon Kan, Cheryl Liu, Kevin Oi, Nancy Tong and Samuel Hon, who are said to be employees of P1 did have numerous access to the system throughout the month of January 2020. This has not been denied by P1. It merely describes it as “accidental logging on and use by some of its employees”. 153.In the abovementioned circumstances, I find on the evidence that the services to the SAP ERP System were provided by the Defendant and that P1 did utilize such services throughout the month of January 2020. Irrespective of any question of estoppel, I find that P1 should pay for such services. The question is how much it should pay. 154.The answer lies in Schedule A-2 to the 2018 Agreement: -
155.The way I read the provisions set out in paragraph 154 above is that the Software Fee is calculated on an annual basis and was to be prepaid on an annual fee basis. The use of the expression ‘pro-rata basis’ in the paragraph under the heading “PAYMENT TERM” was merely to cater for the situation when a new Software was created in the middle of a calendar year, in which case the maintenance service in respect of it would only be over the period of the second half of that calendar year. In such a case, the service fee would be for half of a calendar year instead of a whole calendar year. It would still have to be prepaid on the basis of half of a calendar year. 156.I therefore agree with the Defendant that the service fee should be prepaid on the basis of a calendar year and calculated in accordance with the specified formula. Hence, I do not agree with the P1 that it should be paid on a pro-rata basis according to actual use. 157.In the circumstances, I agree that the Defendant should be paid the Software Fee. 158.Regarding the IT Fee, since P1 has admitted that it did pay for the first quarter of 2020, it must mean that the service fee had been incurred during the first quarter. 159.As to whether the Defendant is entitled to charge for the second quarter of 2020, which is the subject of the invoice dated 5 March 2020, the answer depends on the relevant provisions in Schedule B-2 to the 2018 Agreement. 160.In Schedule B-2, the item under the heading “IT INFRASTRUCTURE MAINTENANCE FEE” reads as follows: -
The item under the heading “PAYMENT TERM” reads as follows: -
161.These provisions are to be compared with those in Schedule A-2 which are set out in paragraph 154 above. Those provisions provide for prepayment on a calendar year basis and are clear that payment for a whole calendar year were to be made at the beginning of the calendar year. The provisions in Schedule B-2 do not specify prepayment on the basis of a calendar year. I interpret them to mean that assessment of the fee is on the basis of the services to be provided within a year but that fee is to be paid in 4 instalments, one for each quarter. 162.In the above circumstances and in view of the fact that before the beginning of the second quarter P1 had already given notice of termination of the 2018 Agreement on 19 March 2020, I hold that the Defendant is not entitled to charge for the second, or third or fourth quarter of the year. On the argument put forward by the Defendant, it should have claimed payment for the third and fourth quarters also. It has not. That is an indication that it does not think that it is entitled to make such a claim. 163.In my judgment, the Defendant is not entitled to the IT Fee. Answers on the Agreed List of Issues 164.I now give my answers on the Agreed List of Issues set out in paragraph 28 above: - Issue 1
Issue 2 In view of my holding under Issue 1 above, it is not necessary for me to deal with Issue 2. Issue 3 By giving notice to terminate the 2018 Agreement on 19 March 2020, P1 had wrongfully and in breach of contract terminated the 2018 Agreement with immediate effect. P1 had wrongfully refused to honour its payment obligations to the Defendant thereunder. Issue 4 Under HCA 452, the Defendant is entitled to be paid the Termination Fee and the Software Fee but not the IT Fee. The Defendant’s Undertaking to the Court 165.As a result of the injunction proceedings instituted by the Plaintiffs after the commencement of these proceedings, the Defendant had given certain undertakings in lieu of injunction to the court when P1 and the Defendant appeared before DHCJ Maurellet SC on 9 August 2019. Those undertakings are still in force. 166.In view of my findings above, I should order that the Defendant should be discharged from those undertakings. 167.The parties have however by consent asked me not to have those undertakings discharged for a period of 28 days in the event that I dismiss the Plaintiffs’ claim in HCA 1416, in case any of the parties decides to take the matter further. 168.I grant the parties’ request. Conclusion 169.I make the following orders: -
170.Last but not least, it remains for me to thank counsel on both sides for the immense assistance which they have very ably given to me in the course of the trial of this rather complicated case.
Mr Vincent Lung and Ms Nicole Chui, instructed by Ince & Co, for the 1st to 4th Plaintiffs in HCA 1416/2019 and the Defendant in HCA 452/2020 Mr Jason Yu and Mr Sim Jing En, instructed by Li & Partners, for the Plaintiff in HCA 452/2020 and the Defendant in HCA 1416/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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